Kodak Mahindra Bank on Wednesday announced its strategy to rely on digital channels to organically double its customer base. It also said that merger talks were purely speculative. Speaking to reporters, executive vice-chairman and managing director Uday Kodak said two to three well-capitalised bad banks are required to resolve the stress in the banking system.

What are your views on resolution of bad loans?

Based on our internal research, net of provisions made on gross bad loans, the total stress in Indian banking is about R14 lakh crore. This includes net non-performing assets (NPAs), restructured assets, SDR, security receipts with ARCs, 5/25, S4A, SMA2. Against this stress, further loss which the banking system will have to take is roughly about 30%. Of R14 lakh crore, R4 lakh crore is the further pain which we believe the banking system has to take, which is 50% of total capital of Indian banks.

You are left with assets of R10 lakh crore at fair value. We believe that we need a pretty significant ability of these R10 lakh crore going into bad banks. I mean two to three well-capitalised bad banks is what I see as the way we should be thinking about. I don’t know what the govt is thinking. These well capitalised bad banks we would love to see, most significant portion of this, comes from private sector capital.

Will the banking sector see consolidation?

Over time, there will be significant consolidation in different shapes and form. And at that point of time, you must be in a position to be a significant player of relevance in the future of Indian finance. We’re seeing a significant opportunity coming in the Indian financial sector with the challenges on the levels of stress which needs to be resolved in some shape and form. We believe the future will be some shape and form of significant consolidation. We’ll be ready to take more risks, including on our loan growth and the book, provided it meets our risk adjusted returns as we see it.

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What are the difficulties faced in sale of bad assets to asset reconstruction companies (ARCs)?

Current structure of stress asset pricing is challenging. Seller of the asset is the buyer of 85% of the same stressed asset. Effectively, on the balance 15%, it is an asset management rather than a true sale. Any structure which says the seller owns 85% of what she sells, is not a correct structure for getting true price in stressed assets. Our view is that the whole stressed assets piece needs significant capital and the government may have its own plan in context of what Viral Acharya said, but there could be a very large play for the private sector and we’re open to all ideas in that context.

We were among the first players in stressed assets since 2003. We understand this biz extremely well. There are different ways you can deal with it — resolutions and turn around. We will be able to consider the whole range of these options. But it is an area which truly excites us and we believe we can add material difference to re-shaping the Indian financial sector in that space. There is nothing concrete at this point of time.

How much capital would you raise and where will it be deployed?

At this point of time, we’ve a board meeting on Thursday. At this point of time, we’re not announcing anything specific with reference to any company. All that you’re seeing are rumours and speculation, which we’ve consistently maintained. There’s nothing that we need to disclose to the markets at this point of time.